Updated Monday, September 22, 2014 as of 4:19 PM ET

BNP Paribas to Pay $8.8B in Sanctions Probe Plea Deal

(Bloomberg) -- BNP Paribas pleaded guilty to charges tied to a U.S. probe of sanctions violations, resolving a wide-ranging state and federal investigation with a penalty of at least $8.8 billion, the largest fine for such a case in history.

BNP agreed to plead guilty in relation to allegations that it processed funds involving Sudan, Iran and Cuba, according to a person familiar with the matter. The bank, suspected of hiding about $30 billion in transactions, will also be barred from clearing U.S. dollars for as long as a year, according to another person, who asked not to be named because the agreement wasn’t yet public.

Today, the Paris-based bank was charged with falsifying business records and conspiracy by Manhattan District Attorney Cyrus Vance Jr. in New York. State prosecutors disclosed the $8.8 billion penalty as the bank appeared in court to plead guilty to the two counts. A press conference is set for 5 p.m. at the U.S. Department of Justice in Washington.

Fallout from the probe, and negotiations over its settlement with state and federal prosecutors, has reached the highest levels of the French and American governments. Overtures this year by numerous French officials, including President Francois Hollande, weren’t enough to persuade U.S. officials to take a more lenient approach with the country’s biggest bank.

In May, Credit Suisse Group AG agreed to pay $2.6 billion, the largest penalty in an offshore tax case, after using secret Swiss accounts to help Americans hide money from the Internal Revenue Service. Its main banking unit pleaded guilty. BNP PROBE

The BNP investigation centered on its commodity-trade finance business in Paris and Geneva. About 30 executives who worked there have resigned, gone on leave, been fired or relocated since 2012, people familiar with the matter have said.

Some unauthorized dollar payments were made on behalf of oil companies to Sudanese or Iranian entities, one former employee has said. Prosecutors also reviewed metals and agriculture commodity deals, as well as non-commodity transactions, two people with knowledge of the matter have said.

While most of the transactions ended in 2008, some continued until at least 2011, two former employees have said. Some bankers believed the deals were allowed because they weren’t given guidance or rules from compliance and legal departments against doing them, they said. Management didn’t order such transactions to stop until 2011, one said. NEW YORK ACCORD

As the severity of U.S. and New York settlement demands became clearer, French officials became more involved. In May, Christian Noyer, the Bank of France Governor, and Edouard Fernandez-Bollo, a senior French banking regulator, met with prosecutors and regulators, according to a person briefed on the matter.

Meanwhile, the case sparked public outrage in France. The right-wing National Front, which beat France’s two mainstream political parties in the May 25 European parliamentary elections, accused the U.S. of “racketeering,” saying the investigation was an effort to weaken BNP and aid its American rivals.

Hollande said June 4 that a disproportionately large penalty against BNP wouldn’t just harm the bank but could reverberate across Europe’s financial system. He raised the issue the following evening with U.S. President Barack Obama, who said that he wouldn’t intervene in the probe.

The following week, France’s central bank said BNP hadn’t violated French or European laws and that the probe may encourage companies to stop using dollars in international transactions. The U.S. claimed jurisdiction in the BNP case because the transactions were processed in dollars.

While BNP’s case is resolved, at least two other French banks are still under investigation. Societe Generale SA and Credit Agricole SA, respectively France’s No. 2 and No. 3 banks by market value, have said in company filings this year that they are conducting internal reviews and cooperating with U.S. authorities regarding dollar transactions involving embargoed countries.

BNP’s penalty dwarfs the combined $4.9 billion levied against 21 other banks for transactions tied to sanctioned countries since Obama took office. Prosecutors argued that the more severe penalty was justified because the misconduct was more egregious and BNP didn’t fully cooperate with the investigation, a person with knowledge of the matter has said.

Corporate penalties for violating U.S. sanctions are escalating. London-based HSBC Holdings Plc agreed to pay $1.9 billion in 2012 to resolve a sanctions-violation investigation and allegations of being used by Mexican drug gangs to launder money. It avoided a guilty plea by admitting wrongdoing.

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